Last week
Last week’s good news wass that after the FTSE 100 fell below 5,000 it bounced back on Friday to close at 5062.9 which was a fall on the week of -3.8%. The relief rally was after the German Parliament voted to bailout the EU with a 148 billion contribution to the EUR 750 billion stabilization package. The FTSE 250 was weighted down by inflation and the prospects of Government austerity and closed down 5.7%. The Aim All Share at 674.3 was 4.7% lower.

This week
Spending cuts are to be announced as the new Government shows the seriousness in its debt repayment intentions. On Tuesday, before the Queens speech , GDP figures will be announced and may show an upward revision from 0.2% and there are forecast for a 3% recovery in 2011. On Friday the latest UK consumer confidence survey might start looking threadbare.

Pause for thought
Risk appetite evaporates as confidence wanes

Westminster Group (WSG) – £6.07m@34.25p
Security services provider Westminster Group is looking to build up a base of recurring revenue so it is not as dependent on large one-off contracts. The purchase of security and fire systems supplier CTAC in April was the first step. The central monitoring control room has been split off as a separate business. All this was too late to contribute to the 2009 figures. Revenues rose from £5.48m to £7.95m, while the profit fell from £201,000 to £140,000. The underlying performance when exchange gains and losses are stripped out shows a swing from a loss of £47,000 to a profit of £217,000. The Longmoor Security training and protection services business made a loss in the months it was part of Westminster but it should be profitable this year.House broker Seymour Pierce forecasts a jump in underlying profit to £900,000 in 2010. The acquisitions since flotation will make a strong contribution to this figure. The training business has won contracts that will improve its contribution and CTAC and the monitoring business will provide recurring revenues.
There was net debt of £825,000 at the end of 2009. Since then money has been raised but most of that was used on the CTAC acquisition. Debtors are relatively high at the balance sheet date because $3.4m was owed by Juba International Airport in Sudan. Since then, $2.7m has been paid and another contract has been awarded.
Westminster paid an initial £825,000 in cash and shares for CTAC and there is deferred consideration of 40% of net profit over the next two years. Management is looking to acquire similar security businesses around the country to give it a regional presence. Any acquisitions could transfer their monitoring business to the company’s own monitoring subsidiary and keep more of the contract value within the group. Add-on acquisitions are likely to be smaller than CTAC. The regional presence will help Westminster to provide the services for its framework contract with the UK Ministry of Justice. The four year contract is to supply and maintain access and security equipment to 139 prisons in England and Wales.
Globo (GBO) – £14.6m@10.25p
Athens-based e-business software and services provider Globo has ridden out the problems in Greece relatively well. Revenues grew by 31% to €23.5m in 2009 and profit improved from €2.86m to €3.2m. The private sector is becoming increasingly important and Globo is cautious about public sector work. Management believes that margins can be maintained.
Greece remains an important source of revenues but Globo is diversifying geographically, particularly in the mobile telecoms area. A trade office has been opened in Singapore. The order book is worth €4.9m, which does not include recurring revenues from Software-as-a-Service contracts. Forecast for the year-end December 2010 are for PBT of £4.25m for an EPS of 2.62p and a prospective P/E of 4x.
Operating cash flow was strong in 2009 but much of it went on investment in new products. Net bank debt was €9.9m at the end of 2009. This figure would have been even better if the Greek government had not delayed making payments to Globo.
Avon Rubber (AVON) – £31.2m@107p
The main defence and protection division has a strong order book and there is scope to increase revenues in the homeland security market for breathing apparatus. Edison believes that this and other new markets could help Avon to double revenues over the next decade.
The dairy division’s performance is recovering, helped by moving production to the Czech Republic, and there are plans to use the company’s brand to distribute other products to the customer base.
Forecasts have been upgraded following the interims. Edison has increased its pre-tax profit forecast for 2009-10 from £7.3m to £7.7m. The shares are trading on less than 6x 2009-10 earnings.
Cash was generated from operations in the first half although the stronger dollar meant that net debt edged up to £14.4m. Capital expenditure during this financial year means that net debt will rise over the short-term. A ten year plan has been agreed to reduce the pension deficit.
Accumuli/NetServices (NSV) – £2.55m@7.75p
Shell (IT managed services) NetServices has sold its business to GCI Telecom for £3.2m in cash and becoming a shell. The managed services business and WAN Services Ltd are being sold. GCI is also buying the NetServices name. Revenues from the business declined from £3.2m to £2.3m in the six months to February 2010. It made a small loss in the period.
There was a small amount of debt in the balance sheet at the end of February 2010 but the pro forma cash should be around £3m.
The company will change its name to Accumuli and look for acquisitions in the IT services sector. Former Xploite boss Ian Smith recently subscribed for shares in NetServices and he will help to find suitable acquisitions. Xploite built up more than one IT related business before selling it on and has just merged with Avisen.
Manx Financial (MFX) – £5.4m@8.5p
Manx Financial Group is raising £1.9m through an open offer in order to finance the growth of the business and help fund acquisitions. The one-for-three open offer is at 9p a share. Manx is raising as much cash as it can without having to issue a full prospectus. The open offer closes on 4 June. Two major shareholders have already committed £1.71m in the form of unsecured convertible loan stock. The cash will provide additional regulatory capital that will enable the lending business to grow. This will help the group to move back into profitability. Manx was formerly known as Conister Trust and then Conister Financial. Conister Bank remains the core business of the group. A wealth management arm was set up at the end of 2009. Major banks are withdrawing from some of Conister’s main markets. As Conister’s lending is based on the deposits it takes it is not dependent on wholesale funding. The other main business is Conister Card Services, which is a sponsor to prepaid card issuers. This business moved into profit in the second half of 2009. There was still a small full year loss in 2009 but that should be different this year.
Manx intends to make acquisitions in the financial services sector. These could be on the Isle of Man or in the UK.
US Oil and Gas (USOP) – £2.19m@7.5p
Oil and gas explorer US Oil and Gas joined Plus-quoted in January in order to raise working capital to develop its oil and gas interests and the business has already made significant progress in discovering oil.
US Oil and Gas raised £239,000 net from a placing at 5p a share. The company was incorporated on 15 June 2009 and had net liabilities prior to the cash call. The strategy is to acquire leases in Nevada at an early stage of their development through US subsidiary Major Oil. Major has leases in Hot Creek Valley, Nye County in central Nevada.
The nature of this area means that standard seismic and other survey methods have not proved successful. US Oil and Gas has conducted an Infrasonic Passive Differential Spectroscopy Survey on two areas and both have produced results that suggests that there is a strong likelihood of hydrocarbons. The areas cover 3km out of the group’s 21km total lease area. One area to the north shows a 96% probability of being an oil discovery.
Although the exploration process appears to be going smoothly that has not been the case with the board. There was a split in the board and an EGM was requisitioned to remove finance director Nial Ring and non-executive director Liam McGrattan. The two men subsequently resigned and the EGM was cancelled.
It was important that this feud was sorted out because US Oil and Gas needs to raise cash in order to take advantage of the prospects it has discovered. A share issue is planned and after further news about the progress of exploration US Oil and Gas is likely to seek to move to Aim. (Plus Qouted)

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